Working Paper 707

Back to Publication

The Age-Time-Cohort Problem and the Identification of Structural Parameters in Life-Cycle Models

Sam Schulhofer-Wohl - Senior Vice President and Director of Research

Published June 26, 2013

Abstract
The standard approach to estimating structural parameters in life-cycle models imposes sufficient assumptions on the data to identify the “age profile” of outcomes, then chooses model parameters so that the model’s age profile matches this empirical age profile. I show that the standard approach is both incorrect and unnecessary: incorrect, because it generally produces inconsistent estimators of the structural parameters, and unnecessary, because consistent estimators can be obtained under weaker assumptions. I derive an estimation method that avoids the problems of the standard approach. I illustrate the method’s benefits analytically in a simple model of consumption inequality and numerically by reestimating the classic life-cycle consumption model of Gourinchas and Parker (2002).


Download Paper (PDF)